BUILDING ON DIAMONDS

THE CONTRIBUTION OF DIAMONDS TO BOTSWANA'S DEVELOPMENT

A challenging beginning

“Bechuanaland: An impoverished, arid and hungry land without hope of achieving economic stability makes its debut this week among the community of nations. The new blue, white and black flags are flying everywhere in Gaborone, its incongruous capital city. But elsewhere in the vast, trackless wasteland that will take the name of Botswana, there is little to celebrate. Two years of disastrous drought and crop failure have brought havoc and hunger to its widely scattered agricultural inhabitants. More than one fifth of the population is literally being kept alive by emergency feeding and the numbers are rapidly increasing.”

Botswana, previously a British Protectorate, secured full independence from Britain in 1966. As it was poor and undeveloped, there was some scepticism about its prospects as an independent nation. The second president, His Excellency Sir Ketumile Masire, was fond of saying,“When we asked for independence, people thought we were either very brave or very foolish.” 7

The Republic of Botswana is landlocked, arid, sparsely populated and, at independence, had limited economic potential. Although it was a democracy, it was surrounded on three sides by minority regimes in South Africa, the then South West Africa (Namibia), and Rhodesia (Zimbabwe). The country’s finances were heavily dependent on foreign aid from Britain.8

Economic possibilities were minimal as the people were rural and agrarian, raising cattle in a climate prone to drought and disease. An abattoir for beef exports that opened in Lobatse in the 1950s was the only formal industry in the country.9 A drought in the 1960s had destroyed one third of the national cattle herd and many workers had left Botswana to seek waged labour in neighbouring South Africa. Income levels were low, even by the standards of other poor African countries. The national infrastructure was virtually non-existent with no energy generation capacity and only 12 kilometres of tarred roads in a country with a land mass larger than that of Spain.10

Human capital was also grossly underdeveloped. The first government secondary school was built in the year before independence.11 It has been estimated that in 1966 there were about 40 university graduates and about 100 secondary school graduates in a population of 595,000.12 Records from 1960 show the presence of only one doctor for every 47,652 people.13

With daunting economic, infrastructural and human capital challenges to overcome, and with no discernible driver for development, Botswana faced an uncertain future.

THE DISCOVERY OF DIAMONDS

Prospects changed just one year after independence, when promising deposits of diamonds were discovered. De Beers had secured prospecting rights in Botswana in 1938 and was exploring consistently by 1955. After 10 long and unsuccessful years, De Beers considered withdrawing, when its lead geologist, Dr Gavin Lamont, persuaded his seniors to continue searching for one more season. The team had instructions that, if diamonds were not found by the end of winter 1966, exploration would end.

Two months before the deadline, the team found the first kimberlite pipe in the Mochudi area. One year later, diamonds were discovered at Orapa. This marked the start of an exciting period during which all of today’s major mines, Orapa, Letlhakane and Jwaneng, were discovered by De Beers. Jwaneng, a dusty scrubland, was to become the world’s richest diamond mine by value.

THE RIGHT CHOICES

The success of Botswana was not inevitable as resource-rich economies often grow more slowly than resource-scarce economies. Windfall discoveries of minerals or oil can, in fact, become a ‘resource curse’.14 This paradox has been attributed variously to negative effects such as Dutch Disease (a sharp currency appreciation that makes other exports less competitive), the loss of incentives to invest in human capital, the volatility of commodity prices which makes planning difficult, and political factionalism or an armed struggle for control of the resource.

Botswana managed to avoid the worst effects of the resource curse by developing and managing its diamond resources with long-term development goals in mind. Consequently, a significant body of literature now recognises Botswana as an example of how good political institutions and prudent economic policy can promote sustainable resource-led growth and development.15

The foundation stones of this success story were political stability, respect for the rule of law, and democratic leadership, drawn from the traditions of Batswana culture in which the will of the people is recognised, and in which high levels of consultation and consensus-seeking are common.

A second feature was the careful planning and investment of all diamond resources in infrastructure and human capital development. Five-year National Development Plans have been introduced since the time of independence, and these have consistently directed mining rents to investment in water and transport infrastructure, education and healthcare.16 Public spending on social services, still heavily funded by diamond revenues, remains high today.

Prospecting in Tati, Botswana, 1970.

ECONOMIC GROWTH

Capital expenditure on mines helped to kick-start other sectors, notably construction, financial services and transport. Growth in the economy increased revenue, allowing for further developmental investment, and lifted national wealth levels rapidly. From 1966 to 2014, Botswana’s GDP per capita (a basic measure of national wealth) grew at an average of 5.9 per cent a year (measured in purchasing power parity), one of the highest rates in the world over that period (see Figure 5). Diamond mining accounted for a large portion of the value added to the economy from the mid-1970s to the mid-2000s.

Botswana has had 11 general elections since independence and is a stable democracy. It has the best sovereign credit rating on the continent and continues to score well on indices of good governance, political stability and control of corruption. Income levels have surpassed countries that started with much higher rates 50 years ago.

FIGURE 6: GDP PER CAPITA, 1966 AND 2014 (CURRENT US$)

HUMAN DEVELOPMENT

Five decades of growth and high levels of public spending have created a better standard of living for most Batswana. Public services and facilities that were only aspirational at independence have been developed. These include free public healthcare; access to free primary and secondary education; and the development of transport, energy and water infrastructure. The ratio of one doctor for every 47,652 people in the 1960s has now improved to one doctor for every 3,300 people.17 Botswana was also the first country in Africa to provide free anti-retroviral therapy (ART) to all citizens, and it is estimated that 90 per cent of those requiring treatment for HIV/AIDS are receiving ART.18 Access to schooling and the pupil/teacher ratio in both primary and secondary schools in Botswana have improved steadily. From just 40 tertiary graduates and 100 secondary school graduates at independence, Botswana produced 10,668 tertiary19 and 8,268 secondary school graduates in 2013.20

CHALLENGES

The Government of Botswana has stressed continually that past achievements may not translate into future successes. Challenges that are common in many developing nations must still be overcome, including unemployment, high levels of inequality, residual poverty, and the over-reliance on diamonds.

The unemployment rate in Botswana is just below 20 per cent and the youth unemployment rate may be as high as 35 per cent.21 A consequence of rapid growth has been a steep rise in levels of inequality. Poverty has decreased but has not been eradicated. The World Bank estimates that more than 13 per cent of the population still lives on less than US$1.90 a day, the Bank’s measure of absolute poverty.22

As a relatively new country, Botswana faces challenges as it works to maximise the value of diamonds while also diversifying the economic base away from this resource by improving private sector competitiveness. The economy remains heavily dependent on diamonds for fiscal and export revenue, with the resource accounting for 86 per cent of export revenues in 2014.23

Botswana stakeholders interviewed as part of the research for this report commented that the wealth generated by diamonds may have created some complacency about growing other sectors, and had made some citizens overly dependent on the State. The Government acknowledges that growth, impressive as it has been, was mostly dependent on capital accumulation from diamonds rather than improvements in productivity, competitiveness and growth in employment.24

Therefore, in the past two decades, there has been much attention given to diversification of the economy in order to move beyond a dependency on diamonds. The 2008 Strategy for Economic Diversification noted that future policies must foster the emergence of competitive, sustainable private enterprises, and should develop skills needed by an open and competitive economy.25 The current National Development Plan 10 (2010 to 2016) also seeks to strengthen economic diversification away from reliance on diamond mining to broader private sector growth.

There has been some success with diversification policies, and mining is no longer as dominant as it once was. In 2012, the non-mining sector accounted for 70 per cent of the total value added to GDP compared with less than 50 per cent a decade earlier.26

These challenges should not diminish the extraordinary success Botswana has had in generating rapid economic growth off a minimal base and improving the basic living conditions of most Batswana in just two generations. Botswana has managed, where many others have failed, to translate the potential of resources below ground into enduring value above ground.

19 Tertiary Education Council (TEC) in Botswana (2015). This figure was obtained by email from a representative of the TEC. Tertiary comprises university, colleges and other institutions of higher learning (7983 in 2012) (Accessed 9 May 2015).

20 Botswana Examination Council (2014). This figure was obtained by email from a representative of the BEC. This is 24.27 per cent of the 34,069 candidates who wrote the Botswana General Certificate of Secondary Education (BGCSE) (Accessed 9 May 2015).

21 World Bank (2014). World Development Indicators. Actual figures for unemployment were 18.4 per cent in 2013, with youth employment at 34.1 per cent in the same year.